Does Opening a Credit Card Hurt Your Credit?
Wondering why your credit score is low after getting a credit card? You are not alone! This happens to even the best of economic gurus. It is not uncommon to see a slight dip in your score shortly after opening a card in a new or existing account. Many people do not know that opening a new credit card hurts your credit score via the hard inquiry it adds to your profile.
Do not fret, though! Even though it may cause an initial decrease, opening credit cards can actually be a financially savvy move. In the same way that your bank account may show irresponsibility, it can also show a lending establishment how trustworthy and dependable you are. By maintaining several cards at once without letting any balances run past their due date, you can improve your credit history. Read on to learn about the different ways opening cards can help or hurt you.
How Do New Credit Cards Affect Your Credit Score?
Does opening a credit card hurt your credit? To put it bluntly—yes. It almost always does initially. Credit reports give you a score ranging from 300 to 850. The average person has a score somewhere between 680 and 720. Good credit is considered to be any number over that. If you find that your score is hovering below 550, consider yourself in trouble.
How Credit is Calculated?
Getting a new credit card typically causes your score to drop a few points in the beginning. The reasoning for this is discussed more in the next section. At this point, it’s important for you to realize that this initial score drop is not the end of the world. While it is true that your number may dip initially, a credit card can help your credit score over time too. When devising your score, a calculator can consider a variety of things such as:
- How long you have had lines open;
- The history of your payments;
- How many lines you have open currently; and
- The diversity of your credit mix.
It is impossible to say how much anything can help or harm you. This is because different entities all use unique formulas when calculating the number that will define your risk rate to them. Thus, it is impossible to say precisely to what extent any decision will affect you.
Does Not Using a Credit Card Hurt Your Credit?
The key things to pay attention to among the above bullets are the number of open credit lines you have and your mix. More diverse mixes that are composed of more than one line are looked upon favorably by credit bureaus so long as they are being managed properly. This means that the balances are getting paid on time and the cardholder can be trusted with provisions of more available credit.
It is possible for a person who has opened three cards and maintained them reasonably well to have a higher score and credit limits than someone who has religiously nursed one single card for years. Conversely, the opposite is also possible. If you are someone who is generally subpar at remembering to pay on time, then it’s probably in your best interest to refrain from juggling more than one line.
How Opening a New Credit Card Can Hurt Your Score?
Opening a new credit card can cause your score to drop by a few points because it mandates that an institution or individual utilize the hard inquiry system to check your score. Hard inquiries are formal requests from an entity to view your score. Do not get this hard look confused with a free credit check, of which all U.S. citizens get 6 annually.
Not every inquiry hurts you. For example, a routine inquiry your bank makes while monitoring your credit will not drag your creditworthiness down. However, opening several credit accounts in rapid succession, or even just one new card, will likely cause at least a minor downward trend. You can pick your score back up fairly quickly by doing things such as the following:
- Paying your balances off on time;
- Not maxing your available credit out each month; and
- Fixing any potential errors in your report.
It is also important to note that just as opening multiple cards too quickly can hurt you, closing cards quickly can harm you as well. When it comes to closing cards, it’s best to do so slowly and as spaced out as possible.
Have You Recently Suffered a Detrimental Score Drop?
Did you accidentally open a card not anticipating the drop it would cause in your account? No worries. You can seek repair services from any of the following best repair companies in order to put yourself on a fast track to improvement!
If your score is already considered high, kudos! But if it is currently too low for you to obtain loans with favorable interest rates, no worries. No matter how deep the hole may seem, it is never impossible to dig yourself out of it. Whether you plan on managing your score yourself or obtaining help from a repair company, it will be possible for you to achieve your financial goals. Opening a new credit card can be helpful in this endeavor so long as you do it responsibly!